Tax Type
Retail Sales and Use Tax
Description
Audit procedures; Use of sample technique
Topic
Collection of Delinquent Tax
Date Issued
05-11-1995
May 11, 1995
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This is in response to your letter of December 7, 1994 in which you seek correction of a sales and use tax assessment to your company, **********(the "Taxpayer"), for the period June 1991 through September 1993.
FACTS
The Taxpayer is primarily engaged in mail order sales. As a result of the department's audit, an assessment was made on certain untaxed sales and purchases. The Taxpayer takes exception to the following issues: exemption certificates, printed materials, employee purchases, and sampling. I will address each issue separately below.
DETERMINATION
Exemption certificates: The auditor held taxable sales made exempt from the tax due to the absence of exemption certificates or inaccurate or incomplete certificates on file.
In Virginia, all sales, leases and rentals of tangible personal property are subject to the tax unless the contrary is established. Virginia Regulation (VR) 630-10-20(B) explains that the burden of proving that the tax does not apply rests with the dealer unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law. A certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable.
Furthermore, certificates of exemption obtained during or after an audit situation are accepted only if the department can confirm that the customer's use of the certificate was valid and proper for the specific transaction.
It is my understanding that the Taxpayer has provided the department with valid exemption certificates with respect to sales held in the audit. Therefore, I will remove these items from the assessment.
Printed materials: Catalogs purchased by the Taxpayer are sent to a mailing service for distribution within and without Virginia. The Taxpayer maintains that it pays the sales tax on all catalogs at the time of purchase from the printer. Therefore, the Taxpayer contends that the charges prorated on the amount of catalogs mailed within Virginia should be removed from the assessment.
Code of Virginia § 58.1-609.6(4) (copy enclosed) provides an exemption for "[c]atalogs, letter, brochures, reports, and other similar printed materials...when stored for twelve months or less in the Commonwealth and distributed for use without the Commonwealth." In this case, the Taxpayer was held for printed materials for distribution within the Commonwealth.
If the Taxpayer can provide documentation indicating that the tax has been paid on the catalogs in question, I will remove those items from the assessment. However, in the future, the Taxpayer may purchase all catalogs exempt under Form ST-10A (copy enclosed) when purchasing such catalogs that are stored for twelve months or less in the state and sent to a mailing service for distribution. The Taxpayer is required to submit the Virginia use tax to the department based upon the number of catalogs that are subsequently shipped to Virginia addresses. In the event that it is administratively impractical to determine the exact number of catalogs sent to Virginia residents, the Taxpayer may submit use tax based on an estimated percentage of catalogs delivered to Virginia. The Taxpayer should adjust such percentage if there is a change in the number of catalogs for distribution within Virginia. In addition, this percentage should also take into consideration printing purchased by the Taxpayer for its own use and consumption, or storage in Virginia for a period of more than twelve months.
Employee purchases: In this case, the Taxpayer was held liable for untaxed purchases of tangible personal property paid with the Taxpayer's credit card. The Taxpayer maintains that these items were in fact purchased by its employees. However, it is my understanding that in a recent conversation with a member of my staff, you wish to withdraw your protest regarding this issue. Therefore, these items will remain in the assessment.
Sampling: The Taxpayer contends that certain sales included in the audit sample are nonrecurring in nature since there were no sales to these customers in the previous two years of the audit period. Therefore, you maintain that these sales are not representative of the audit period.
Sampling is an audit technique of significant value that is widely used in both the public and private sectors in all types of audits where a detailed audit would not prove beneficial either to the auditor or the taxpayer. When sampling techniques are understood and properly applied, the final result should be within a narrow percentage range of the actual amount that would be determined by a detailed audit.
The fact that only sporadic sales were made to these customers during the entire audit period does not by itself render the sample inaccurate. These sales are apparently of the same nature as sales made to other customers during the audit period. While the customers in question made only purchases during the sample period, but not throughout the entire audit period, there are likely other regular customers who did not make purchases during the sample period. Therefore, I find that the audit techniques in this case were properly applied.
The information with respect to the catalogs, should be provided within 60 days of the date of this letter to the department's Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23282-1880, Upon review and possible revision as a result thereof, a revised Notice of Assessment will be mailed to the Taxpayer. If the documentation is not received within the specified time period, the assessment will be revised in accordance herein.
If you have any further questions regarding this determination, you may call**************. of the department's Office of Tax Policy at**************.
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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Rulings of the Tax Commissioner